A much-anticipated reform in the real estate sector for 2014 was the introduction of the draft Condominium Law, but a series of disagreements among lawmakers has delayed its introduction to an unspecified date. The draft law is now expected to be re-submitted to the parliament in January 2015. The law, if approved as proposed, will allow foreigners to own apartment units, albeit with conditions attached. It will give foreigners the right to lease, buy or exchange apartments, provided the number of foreign-owned units does not exist 40% in any given condominium building. The law will also restrict foreigners to apartments on the sixth floor or above. The proposed Condominium Law will also give apartment owners more control over their property by granting strata title to owners of apartments in registered condominiums. This will strengthen ownership rights and can open the door to international financing for developers and mortgages for buyers.
The increase in foreign investments following the opening up of Myanmar’s economy resulted in a huge demand for real estate space. Foreign companies and individuals are now scrambling for office space as well as accommodation. Demand far outstrips the supply, as more foreign oil and gas companies, as well as firms in sectors such as telecommunications and foreign banks, arrive in Myanmar.
The Condominium Law would have permitted foreigners to own apartments and foreign organisations to own office space in condominiums. For these investors, the Condominium Law would have given them the protection that they are used to in other developed as well as emerging economies. In December 2014, lawmaker U Phone Myint Aung said that the long-awaited Condominium Law will be re-submitted to the parliament in January 2015. A key issue in contention was the provisions regarding collective ownership, since the collectively owned condominiums will enable the owners to use their properties as collateral and apply for mortgages. Presently this is not allowed, as apartment owners do not own the land located under buildings.
While the delay in the implementation of the Condominium Law has caused some frustration for foreign investors, Myanmar’s real estate sector was nevertheless helped immensely by the introduction of another law in late 2012, the new Foreign Investment Law (FIL), which expanded opportunities for foreigners to invest in property. Under the FIL, foreigners can invest in real estate development either through a joint venture, or by 100% ownership through a build-operate-transfer (BOT) lease agreement with the government. Under the joint venture scheme, foreign participation is limited to 80%, as local citizens or enterprises must own at least 20% of the equity. The BOT lease agreements however provide full ownership to foreign investors but it is limited to 70 years. The law also allows foreigners to take over BOT leases from locals.
The foreign investors wanting to collaborate with local players, whether by signing a new lease or assuming an old one, must first receive approval from the Myanmar Investment Commission. The application process is rigorous and the commission decides on each case individually at its discretion. The first example of a 100% foreign-controlled real estate project in Myanmar was the $440m mixed-use development by Hoang Anh Gia Lai Group (HAGL), a major Vietnamese developer-builder. The project was tendered in late 2012, and a BOT lease agreement was signed with HAGL weeks after the new law was adopted.
Another reform that benefits foreign investors and the rapidly growing real estate sector is the recent opening of the banking sector to foreign banks. Obtaining financing was a major challenge as the domestic financial system is deemed to be too weak to support development. Restrictions on foreign ownership also made it difficult for investors to utilise Myanmar’s existing real estate assets as collateral against foreign bank loans. In October 2014, Myanmar granted banking licences to nine foreign banks that will be allowed to provide full banking services to foreign firms, improving foreigners’ access to capital and fuelling growth.
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